- A publically traded client recently entered into an Agreement to raise necessary capital to fund ongoing business operations. The Agreement included several terms requiring fair value of derivatives. The derivatives include the issuance of initial warrants to purchase common stock in the Company. If the common stock price remains above a trigger price and term, the Company will issue subsequent warrants with a different strike price and maturity. The warrants also include quarterly payments and benefit from a Down Round Provision (a separate derivate) which adjusts the strike price if equity is issued below the original purchase price.
There are three call rights included in the Agreement. The Investor may purchase up to $500,000 in common stock (“Call 1”) at the Prevailing Market Price (a moving 40-day average), $3,000,000 in common stock (“Call 2”) at the greater of $1.25 or the Prevailing Market Price, and $5,000,000 in common stock (“Call 3”) at the greater of $1.50 or the Prevailing Market Price.
Subject to certain restrictions, the borrower obtained the right to sell up to $500,000 in common stock (“Put 1”) at the Prevailing Market Price, $3,000,000 in common stock (“Put 2”) at the greater of $1.25 or the Prevailing Market Price, and $5,000,000 in common stock (“Put 3”) at the greater of $1.50 or the Prevailing Market Price.
To determine the fair value of the various components of the Agreement, we selected the binomial option model for the intial warrants without the Down Round provision. Due to the specific terms of the other derivatives, such as changing strike prices and availability depending on average future price targets, we implemented a Monte Carlo analysis since an appropriate value cannot be determined by standard option valuation models.
- A publicly traded company recently made an acquisition which resulted in a bargain purchase and included contingent consideration, incorporating almost every distinguishing aspect of FAS 141R (ASC 805) compared to FAS 141. In addition, the transaction was an asset purchase, and the target was an international company. We valued the contingent consideration, which relies on a defined profit calculation over the next few years, as well as every tangible and identifiable intangible asset included in the transaction allowing the company to quickly move a complex transaction through the audit and SEC review process.
- Adams Capital represented a franchisee whose only sale option was to the franchisor. The initial offer was $4 million, which the franchisee felt was too low. Adams Capital offered business data and analysis supporting a much higher price and ultimately persuaded the franchisor. After three years and two final offers, the business was sold for over $40 million.
- We represented an 80 year old woman who inherited a 50% interest in a family real estate holding company. The nature of the ownership posed a problem for her estate planning. She needed to sell and was not interested or capable of negotiating nor closing a transaction. Adams Capital negotiated a purchase agreement with the other 50% family owner overcoming objections to the purchase price by arranging a recapitalization of the company. Our client received a fair price, shared in any future transaction over negotiated terms, and only had to sign the sale agreement and accept funds. Removing herself from the transaction negotiations enabled her to maintain her relationship with the buyer and enabled her to enjoy her 80th year of life without distraction.
- A venture-backed technology company needed to determine the value of privately-held employee stock options and warrants with a complex capital structure. The company had outstanding options for common stock and outstanding warrants for multiple rounds of preferred equity. Adams Capital developed a proprietary model to simulate the exercise of warrants to accurately measure the dilutive impact as well as the rights and terms of every class of preferred stock. The result met both GAAP and IRS compliance requirements with greater sophistication and accuracy than typical in the marketplace.
- Adams Capital assisted a pharmacy tenant in a dispute with their landlord involving an exclusivity covenant that was broken. The pharmacy needed to determine the destruction of leasehold value due to the alleged breach of contract as opposed to lost profits. We applied a real-options pricing framework to determine the change in the fair market value of the lease. Adams Capital determined that the diminution of the leasehold value was less than $25,000, rather than the claimed $500,000.
- The breach of a sales representative agreement in the medical device industry resulted in litigation. The client needed to determine the damages to the business as a result of the sales force being poached by the manufacturer. Adams Capital applied a Monte Carlo simulation to incorporate the high volatility of sales and calculate the damages as a result of the loss of the sales representatives. Adams Capital determined that the damages incurred by the Plaintiff were over $11 million dollars.
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